Personal Income Tax
Tax rates and allowances (Table A)
Personal allowances and higher rate thresholds were increased
in line with inflation. Age-related allowances were increased
at above inflation, taking more pensioners outside the charge
to income tax. As announced last year, general income - salary,
profits, pensions, rent - will no longer benefit from the
10% starting rate, while the basic rate drops from 22% to
20%. The benefit of these changes is in the region of £790
for a higher-rate taxpayer.
The loss of the 10% rate on earnings means that someone with
a salary of between £5,650 and £16,500 could be
worse off. A high earner will also pay more in National Insurance
Contributions as a result of the raising of the upper earnings
limit (see p.4), which will cancel much of the income tax
cut. The people who benefit most are those with mainly investment
income.
The overall effect is complicated by the different rates
which continue to apply for general income, interest and dividends,
and the possibility that a separate claim may be made for
Working and Child Tax Credits to be repaid by the Revenue.
The calculation of the tax position remains as complex as
ever.
Charities
When the basic rate of income tax is cut, charities suffer
a reduction in the tax they can claim back on Gift Aid donations.
Charities and Community Amateur Sports Clubs will be temporarily
protected from this drop in income in spite of the cut in
basic rate on 6 April 2008: for the three years 2008/09 to
2010/11, they will still claim 28.2% of Gift Aid donations
as if the basic rate was 22%. In 2011/12, according to the
current proposals, the relief will drop to 25% for the charity.
An individual will claim higher rate tax relief on the basis
that the cash gift was 80% of a gross donation.
Income split between husband and wife
After the House of Lords ruled in 2007 that the taxman could
not attack a tax efficient split of income between a husband
and wife owning a small company together (the case of Garnett
v Jones, also known as "Arctic Systems") the Government
announced that the law would be changed to make sure that
married couples in this situation "paid their fair share
of tax".
Detailed proposals were published in December 2007 to reverse
the benefit of "uncommercial income shifting" for
tax. The Government appears to have heeded the criticism that
the proposals would have made self-assessment impossible and
has decided to defer any changes until April 2009.
Remittance basis for foreign domiciled people
In the October Pre-Budget Report, Mr Darling announced a
new measure to restrict the tax advantages of foreign domiciled
people living in the UK for the long term. Foreign domiciled
people are allowed to pay tax on their overseas income and
capital gains only if and when they bring the money into the
UK - known as the "remittance basis of taxation".
As announced in October, a number of significant changes
will be made from 6 April 2008. The most striking is the imposition
of a flat rate £30,000 charge on those who choose to
be taxed on remittances after being UK resident for 7 years.
This will not apply to anyone who opts to be taxed on foreign
income as it arises, or to someone with no more than £2,000
in overseas income and gains.
| Tax Trap |
| If you have in the past used the remittance basis, you need to review your situation urgently. |
Residence test
In deciding whether a person is resident in the UK for tax
purposes, it is necessary to count the number of days spent
in the UK. Until 5 April 2008, the Revenue's normal practice
has been to ignore days of arrival and departure, which was
very favourable to the taxpayer. From 6 April 2008, a day
will be counted if the person is in the UK at midnight. This
is more generous than the October announcement, which would
have counted days of arrival and departure.
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